The IRS has announced various extensions of deadlines for qualified opportunity funds and their investors due to the Coronavirus pandemic.
180-Day Investment Period
Generally taxpayers must reinvestment capital gain in a qualified opportunity fund (QOF) within 180 days after the gain is realized from a sale or exchange. Under the guidance, if the last day of the 180-day investment period falls on or after April 1, 2020, and before December 31, 2020, the last day of the investment period is automatically postponed to December 31, 2020.
90-Percent Investment Standard
The guidance also provides that a QOF’s failure to hold 90 percent of its assets in qualified opportunity zone property on any semi-annual testing date that falls on or after April 1, 2020 and ends on or before December 31, 2020 is due to reasonable cause on account of the COVIS-19 pandemic. Therefore, the failure to satisfy the 90-percent test does not affect an entity’s status as a QOF or prevent an investment in the entity from being a qualified investment. Penalties due to failure to satisfy the 90-percent investment standard during this period are waived.
30-month Substantial Improvement Period Tolled
The 30-month period during which property held by a QOF or qualified opportunity zone business must be substantially improved is tolled during the period beginning on April 1, 2020, and ending on December 31, 2020.
24-Month Extension of Working Capital Safe Harbor Spending Deadline
Qualified opportunity zone businesses holding working capital intended to be covered by the 31-month working capital safe harbor before December 31, 2020, receive up to an additional 24 months to spend the working on qualifying property. This extension is allowed under the QOF regulations on account of the prior declaration of a Federally declared disaster relating to the pandemic effective on January 20, 2020.
12-Month Extension of Reinvestment Period for QOFs
Finally, if any part of the 12-month period during which a QOF may reinvest returns of capital and proceeds from the sale of qualified opportunity property in other qualified opportunity zone property includes January 20, 2020, the reinvestment period is extended up to an additional 12 months. Again, this extension is allowed under the QOF regulations due to the disaster declaration.
Notice 2020-23, I.R.B. 2020-18, 742 is modified.